Block on Minerals Called Threat to Japan’s Economy

Wednesday

Sep 29, 2010 at 4:18 AM

A standoff between China and Japan showed signs of a breakthrough after an official said new export licenses were issued.

HIROKO TABUCHI

TOKYO — A halt of Chinese shipments of crucial industrial minerals to Japan poses a threat to the Japanese economy, a top Tokyo government official said Tuesday, amid a dispute over territorial sovereignty that has damaged relations between the regional rivals.

The Chinese commerce ministry has denied that it is blocking exports of the minerals, known as rare earths, which are used in products like hybrid cars and wind turbines.

An official at a trading house in Japan said early Wednesday, however, that there were signs that Chinese authorities were issuing new export licenses for rare earth shipments to Japan, which he said had been terminated since early last week.

An official at the headquarters of China’s customs agency and an official at the Beijing municipal customs office each declined to comment.

Executives and traders in both countries have said that Chinese customs agents have blocked rare earth exports since early last week, after a diplomatic dispute over Japan’s detention of a Chinese fishing trawler captain in waters claimed by both countries. Japan released the captain on Friday.

A Japanese trader in the minerals said Tuesday that customs agents were still not allowing shipments of rare earths to Japan. Traders here say that it would be extremely difficult to find other sources of the minerals if shipments continue to be held up. China mines 93 percent of the world’s rare earth minerals, which can sell for hundreds of dollars a pound.

“The de facto ban on rare earths export that China has imposed could have a very big impact on Japan’s economy,” the economic and fiscal policy minister, Banri Kaieda, told a news conference Tuesday. “We need to restore Japan-China ties, especially economic exchanges, as soon as possible.”

China’s commerce ministry has steadfastly denied that China has imposed a ban on exports, which would violate World Trade Organization rules. In the United States, the United Steelworkers union filed a legal petition last month asking the White House to begin W.T.O. proceedings against China for a series of alleged violations of W.T.O. rules in exports related to green energy, and that petition singled out China’s handling of rare earth exports in recent years as a particularly strong candidate for a W.T.O. case.

The Office of the United States Trade Representative has said that it would make a decision on the petition by Oct. 24, the deadline under the obscure law cited by the union.

Rare earths are used to make many products: glass, batteries, compact fluorescent bulbs and computer display screens. Demand has risen in the last decade for their use in clean energy technology, like generators for large wind turbines and lightweight electric motors for cars.

They have been crucial as Japanese automakers vie to keep the lead in fuel-efficient vehicles, turning to the minerals for the powerful electric motors that help propel gasoline-electric hybrids like the Toyota Prius, or Nissan’s all-electric car, the Leaf.

Separately, Toyota Motor said it had set up a task force to handle rare earth procurements. The task force was established in response to “the current situation” in rare earth trade with China, said Paul Nolasco, a spokesman for the automaker in Tokyo. He declined to give other details.

An official at a trading company based in Tokyo, who spoke on condition of anonymity, said it was unclear if the continued restriction in shipments was the result of a backlog that might have built up over the weeklong halt or whether a longer-term ban was in place.

The Associated Press reported that Japan’s finance minister, Yoshihiko Noda, had acknowledged the concerns among Japanese businesses, and said that Tokyo had submitted a statement to Beijing asking it to clarify the situation.

China, predicting robust growth of its own auto industry, has placed increasingly stringent export restrictions on rare earths. Some experts predict that exporters in China could run out of quotas as soon as the end of October, although that had nothing to do with the suspension of exports last week.

While China’s refusal to acknowledge a ban has puzzled some within the industry, others say an unofficial halt carries political and legal advantages. A halt to exports because of administrative needs would be harder for Japan to challenge at the World Trade Organization, which prohibits unilateral export restrictions in most cases.

On Sunday, Chen Deming, China’s commerce minister, said in an interview on Chinese television that the government had complied with World Trade Organization rules by not ordering a ban on rare earth exports to Japan.

But he seemed to hint that a halt on exports might have occurred anyway when he said, “I believe entrepreneurs, they will have their own feelings, and will do their own thing.”

There are 32 companies with rare earth export licenses in China, and 10 of them are foreign companies. Mr. Chen was not asked why foreign companies would have felt a need to stop shipments.

The dispute comes at a politically difficult time for China, with the approach of National Day on Oct. 1, the anniversary of the creation of the People’s Republic of China in 1949 after more than a half-century of Japanese incursions into the Asian mainland — a holiday comparable to the Fourth of July in the United States.

Chinese leaders have been especially keen to play to patriotic sentiment at this time of year and to avoid backing down to foreign pressure, especially from the Japanese.

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.